Portland Retail Druggists Ass'n v. Kaiser Foundation Health Plan

Citation662 F.2d 641
Decision Date30 November 1981
Docket NumberNos. 78-2465,78-2466,s. 78-2465
Parties1981-2 Trade Cases 64,386 PORTLAND RETAIL DRUGGISTS ASSOCIATION, etc., Plaintiff-Appellant, v. KAISER FOUNDATION HEALTH PLAN, et al., Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Henry Kane, Beaverton, Or., Roger Tilbury, Portland, Or., for plaintiff-appellant.

Max Thelen, Jr., Thelen, Marrin, Johnson & Bridges, San Francisco, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before GIBSON, * SNEED and POOLE, Circuit Judges.

POOLE, Circuit Judge:

Several retail pharmacies, and a nonprofit trade association to which some of them belong, appeal the orders of the district court disposing of all of their claims brought in two consolidated antitrust actions. We vacate the entry of judgment and remand for further proceedings.

I

This litigation began as two separate suits, one filed in the Northern and the other in the Central District of California in January 1977. Each complaint is substantially identical and charges appellees with violations of three distinct antitrust provisions: (1) Section 2(f) of the Robinson-Patman Anti-Price Discrimination Act, 15 U.S.C. § 13(f), by knowingly inducing or receiving discriminatorily low prices from pharmaceutical suppliers; (2) Section 2 of the Sherman Act, 15 U.S.C. § 2, by attempting to monopolize the retail drug market; (3) Section 1 of the Sherman Act, by unlawfully tying health products and services for sale. Class allegations were pleaded.

The various appellees together make up "health maintenance organizations," operating under the Kaiser-Permanente Medical Care Program (Kaiser). A health maintenance organization, like the typical health insurer, in an actuarial sense spreads the financial cost of health services by charging each of its members annual dues. Unlike typical insurance, the organization itself provides health services. Among the services offered by Kaiser is a drug benefit plan which permits members to obtain pharmaceutical products from Kaiser-operated pharmacies on favorable terms. Existence of the plans, and their perceived effect on the retail pharmacy business of appellants, led to the two lawsuits.

On April 11, 1977, the Judicial Panel on Multidistrict Litigation consolidated these cases in the Central District of California where they were assigned to Judge Hill. On May 23, 1977, the court convened a status conference aimed at lending some procedural order to this complex litigation. That conference produced a pretrial order, filed by the court on July 26, 1977.

Initially, the pretrial order classified these cases as complex and directed them to be conducted pursuant to the Manual for Complex Litigation. Memorialized in the order was Kaiser's intention to file with the court Fed.R.Civ.P. Rule 12(b) motions to dismiss on several grounds. Although these motions were not described in the order, the primary allegations asserted as grounds for dismissal (and those relevant on this appeal) were that: (1) Kaiser engages in the business of insurance and therefore enjoys antitrust immunity by virtue of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b); 1 (2) Appellants' Robinson-Patman cause of action failed to state a claim because Kaiser is exempt from liability pursuant to the Robinson-Patman Price Discrimination Act, 15 U.S.C. § 13c; (3) Appellants' attempt to monopolize cause of action failed to state a claim; (4) Appellants' tying cause of action failed to state a claim. 2

The pretrial order indicated that the district court would first consider the 12(b) motions to dismiss at a hearing set for January 23, 1978. Assuming appellants' complaint should withstand these tests of its sufficiency, a hearing was then scheduled a week later on appellants' motion to certify a class which was to be shortly filed.

The remainder of the order set out a briefing schedule. On August 1, 1977, Kaiser was to file the "Rule 12(b) motion and supporting papers based on the McCarran-Ferguson Act exemption and shall file (the) remaining Rule 12(b) motions without supporting papers." On November 1, 1977, Kaiser was to file supporting papers in connection with all the motions other than McCarran- Ferguson which it had noticed on August 1. Limited discovery was permitted by the order "relating to defendant's aforementioned Rule 12(b) motions and plaintiff's motion to certify a class."

As ordered, Kaiser filed its "Notice of Motion ... to dismiss and to strike under Fed.R.Civ.P. Rule 12." Although styled a Rule 12 motion to dismiss, the final sentence provided: "To the extent matters outside the pleadings are presented to, and not excluded by the Court, the motions shall be treated as ones for summary judgment pursuant to the last sentence of Fed.R.Civ.P. Rule 12(b)."

Accompanying this motion was the "Affidavit of Scott Fleming in support of defendants' Rule 12(b) motions and alternative motions for summary judgment." That affidavit is a general discussion of the Kaiser program, organization and operations, including the drug benefit program. It was submitted pursuant to the discovery order as a supporting paper in connection with the McCarran-Ferguson motion.

The limited discovery authorized in the order proceeded. Appellants propounded interrogatories, took two depositions and obtained production of numerous Kaiser documents. In July, appellants returned to the district court seeking discovery of pricing information from Kaiser. The justification offered for the request was appellants' claim that if Kaiser did not receive significant discounts on drugs purchased, or received discounts only as to certain drugs, the case might be dropped or the class of plaintiffs narrowed. The request for broadened discovery was denied; for purposes of all pending motions Kaiser conceded that it received price discounts. 3

On November 1, 1977, Kaiser filed its supporting papers in connection with the remaining motions noticed in August (other than McCarran-Ferguson). Although described in the August notice as motions to dismiss (except for the sentence mentioned above which reserved the possibility of conversion to summary judgment motions), the motions were now clearly labelled in the alternative: for dismissal or summary judgment. In addition, a second affidavit of Scott Fleming was filed dealing particularly with factual issues implicated by Kaiser's newly filed supporting papers.

Appellants responded to Kaiser's motions claiming surprise that matters beyond the pleadings were submitted and reiterating their understanding that only 12(b) motions were to be considered by the court. Nonetheless, two affidavits were filed, executed by Stanley Harman. One was tendered in specific response to the McCarran-Ferguson motion and the other related to the price and contract arrangements by which Kaiser acquired drugs from manufacturers.

The case came on for hearing before the district court on January 23 and 24. At the outset, the court announced that it was prepared to consider matters outside the pleadings in ruling on Kaiser's motions and would therefore proceed as though the motions were for summary judgment under Fed.R.Civ.P. 56. Appellants objected but the district court found that, since August, appellants had been fairly apprised that the motions before the court would be treated as for summary judgment, and that the three-month discovery permitted (until November 1) by the pretrial order was reasonable. The court noted that adequate discovery had been conducted, particularly as to the McCarran-Ferguson defense, and appellants were unable to specify with particularity what additional discovery they needed to undertake.

The district court disposed of this case as follows: First, the court granted, in the alternative, Kaiser's motion to dismiss and entered summary judgment as to each cause of action, concluding that the McCarran-Ferguson Act exempted Kaiser from antitrust liability; Second, the court granted Kaiser's motion for summary judgment as to the Robinson-Patman cause of action (count one), concluding that Kaiser was exempt from liability by virtue of the Robinson-Patman Price Discrimination Act, 15 U.S.C. § 13c; Third, the court granted, in the alternative, Kaiser's motion to dismiss and entered summary judgment as to the claim of attempted monopolization (count two), concluding that appellants had failed to allege or create a material issue of fact revealing predatory conduct on the part of appellees; Finally, the court granted, in the alternative, Kaiser's motion to dismiss and entered summary judgment as to the tying claim (count three), concluding that Kaiser's health benefits amounted to one service and not the two required for a tying offense.

Appellants filed a notice of appeal to this Court and the case is now properly before us for decision. Appellants allege procedural defects in the grant of summary judgment and ask that we order the district court's judgment reversed on the merits.

II

Summary judgment may be properly entered when the record before the court on the motion reveals the absence of any material issue of fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. Before summary judgment may be entered against a party, that party must be afforded both notice that the motion is pending and an adequate opportunity to respond. Implicit in the "opportunity to respond" is the requirement that sufficient time be afforded for discovery necessary to develop "facts essential to justify (a party's) opposition" to the motion. Fed.R.Civ.P. 56; see Program Engineering, Inc. v. Triangle Publications, Inc., 634 F.2d 1188, 1193 (9th Cir. 1980); Lucas v. Bechtel Corp., 633 F.2d 757, 759 (9th Cir. 1980); British Airways Board v. Boeing Co., 585 F.2d 946 (9th Cir. 1978).

Appellants contend that they were denied both notice that ...

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